Your Business Needs a Flux Analysis
Flux Analysis is a type of comparison technique that helps us understand the changes in a company’s financials from period to period. It is shortened from Fluctuations Analysis and is also sometimes called Horizontal Analysis. We use the method to evaluate the fluctuations in accounts over time. We usually express such changes in both monetary […]
Seasonality and Trend Forecast with Regression in Excel
In our last article, we discussed Seasonality in Financial Modeling and Analysis. We went over an example Excel model of calculating a forecast with seasonality indexes. Today we will use regression analysis in Excel to forecast a data set with both seasonality and trend. Let’s look at the quarterly sales revenue of the electronic cameras […]
Sharpe Ratio and Risk-Adjusted Returns
In finance, one of the popular methods to adjust return rates of investments for risk is the Sharpe Ratio. William F. Sharpe developed the ratio in 1966 and revised it in 1994 to arrive at the formula we use today. Originally he called it the ‘reward-to-variability’ ratio. Later on, finance professionals started referring to it […]
Understanding the Binomial Option Pricing Model
The Binomial Option Pricing Model is a risk-neutral method for valuing path-dependent options (e.g., American options). It is a popular tool for stock options evaluation, and investors use the model to evaluate the right to buy or sell at specific prices over time. Under this model, the current value of an option is equal to […]
Quick Ratio in Financial Analysis and Modeling
Introduction We perform a liquidity ratio analysis to evaluate the ability of the company to settle its obligations on time. The most common use case is when lenders and creditors want to gain a better understanding of the financial health of a borrower or customer. Analysts use the gained insights to set credit terms and […]
Time Value of Money Explained
Introduction To understand the Time Value of Money, imagine you were offered 100 euros now or 100 euros in three years, what would you prefer? If you are like me, you’d probably prefer the money now. But why is that, when a 100 euros has the same value now and in the future? Having it […]